Bankruptcy in Australia: How It Works, What You Keep and the Alternatives

Bankruptcy is a formal, federal process under the Bankruptcy Act 1966 (Cth) that releases a person from most unpaid debts, administered nationally by the Australian Financial Security Authority (AFSA), with two other formal options, a debt agreement and a personal insolvency agreement, available to people who owe money but do not want to become bankrupt.

Personal insolvency law in Australia is federal, so the rules are the same in every state and territory; there is no state-by-state variation to check. This hub covers how bankruptcy itself works, what property a bankrupt person keeps and loses, the consequences that follow a bankruptcy, how to apply, and the formal and informal alternatives available before bankruptcy becomes necessary. A free financial counsellor through the National Debt Helpline can help work out which of these options fits a specific situation.

What bankruptcy is and who runs it

Bankruptcy is created either by a debtor's own application (a debtor's petition) or by a creditor's court application after a debt goes unpaid (a creditor's petition). AFSA, the Australian Financial Security Authority, administers the process day to day; the Bankruptcy Act 1966 itself now sits with the Department of the Treasury as the responsible policy portfolio, not the Attorney-General's Department. Every bankruptcy has a trustee, either the Official Trustee (AFSA itself, the statutory default) or a private registered trustee, who takes control of the bankrupt's divisible property and deals with creditors. The how bankruptcy works guide covers voluntary and involuntary bankruptcy, the trustee's role, and how and when a bankruptcy ends in full.

Bankruptcy, a debt agreement or a personal insolvency agreement

The Bankruptcy Act sets out three separate formal ways to deal with debts you cannot pay. They are not interchangeable; each has its own eligibility rules and consequences.

A debt agreement, covered on its own guide, needs a majority in value of responding creditors to vote it through, and is only open to debtors whose unsecured debts, divisible property and after-tax income each sit under AFSA's current indexed caps. A personal insolvency agreement, covered separately, carries no such caps at all, but needs a 75%-in-value and majority-in-number special resolution from creditors, per AFSA's own guidance on section 204, and is generally more expensive to set up.

What you keep and what happens to your property

Bankruptcy does not take everything. Household items, tools of trade up to an indexed limit, a vehicle up to an indexed limit, superannuation and personal-injury compensation are protected under section 116(2) of the Bankruptcy Act. Most other property, including house equity, cash, shares and anything acquired before discharge, vests in the trustee, and income above an indexed threshold is subject to a 50% contribution. Some debts, such as court fines, HECS/HELP debts, child support and fraud debts, are not released or not even provable in the first place. The what you keep and lose guide covers the full indexed-thresholds table, each with its own AFSA update cadence, and the debts bankruptcy does not clear. Inheritances received during a bankruptcy also vest in the trustee; see wills and probate in Australia for how that interacts with a deceased estate.

The consequences of bankruptcy

A bankruptcy is recorded permanently and publicly on the National Personal Insolvency Index; only limited details such as an address can ever be withheld, never a person's name or date of birth. Separately, under section 20X of the Privacy Act 1988, a credit report shows the bankruptcy for 5 years from when it started or 2 years after discharge, whichever is later. An undischarged bankrupt cannot manage a company, under section 206B of the Corporations Act 2001, and needs the trustee's written consent to leave Australia, under section 272 of the Bankruptcy Act. Some occupations and trade licences carry their own restrictions, set by state licensing bodies rather than the Bankruptcy Act itself. The consequences of bankruptcy guide covers all of this in full, including how it can touch employment; see employment law in Australia for the broader picture of a worker's rights.

Applying for bankruptcy

A debtor applies through AFSA's Online Services portal by lodging a Debtor's Petition and a Statement of Affairs together, and the debtor's-petition fee is $0. Other AFSA processes carry their own fees, and the realisations charge deducted from money the trustee recovers is 7% according to AFSA's current fee guidance. The how to apply guide covers the application process, the full fee schedule, and how to get confirmation once a bankruptcy has ended.

Alternatives to bankruptcy

Before or instead of a formal insolvency option, a debtor in genuine short-term difficulty can apply for temporary debt protection, a 21-day freeze on unsecured enforcement action under sections 54A to 54L of the Bankruptcy Act, though applying for it is itself an act of bankruptcy. A free financial counsellor is available through the National Debt Helpline on 1800 007 007, a government-endorsed service delivered by a not-for-profit. Many lenders will also agree to an informal hardship arrangement outside the Bankruptcy Act entirely, which does not appear on the NPII. A company, but never a sole trader, with unmanageable debt may instead be eligible for small business restructuring under Part 5.3B of the Corporations Act 2001, a separate, company-only regime regulated by ASIC. The alternatives to bankruptcy guide covers all of this in full. For general consumer debt rights beyond insolvency, see consumer law in Australia and who to complain to in Australia.

Frequently Asked Questions

What is the difference between bankruptcy, a debt agreement and a personal insolvency agreement?

All three are formal options under the Bankruptcy Act 1966, administered by AFSA. Bankruptcy has no eligibility caps but lasts at least 3 years and 1 day and stays on the National Personal Insolvency Index permanently. A debt agreement (Part IX) is only open to debtors under three indexed debt, property and income caps, and can run up to 3 years, or 5 for a homeowner. A personal insolvency agreement (Part X) has no eligibility caps and a negotiated duration, but is generally more expensive to set up.

How much do I have to owe before a creditor can make me bankrupt?

A creditor can apply to make a debtor bankrupt once a debt reaches AFSA's current statutory minimum of $10,000, after serving a bankruptcy notice that goes unanswered for the 21-day compliance period.

Does it cost anything to apply for my own bankruptcy?

No. AFSA's fee schedule lists no fee for a debtor's petition, and AFSA states directly that there is no fee to apply for bankruptcy. Other applications, such as a bankruptcy notice or overseas travel consent, do carry separate fees.

How long does bankruptcy last in Australia?

Automatic discharge generally happens 3 years and 1 day after the Official Receiver accepts a debtor's petition, or after the statement of affairs is filed in a creditor-initiated bankruptcy, under section 149 of the Bankruptcy Act. A trustee's objection to discharge can extend this to 5 or 8 years depending on the ground.

Is there a free alternative to bankruptcy?

A free financial counsellor is available through the National Debt Helpline on 1800 007 007, a government-endorsed service delivered by a not-for-profit, which can advise on informal hardship arrangements with lenders as well as the formal options on this hub.

Are there any bankruptcy law changes coming in Australia?

As of August 2026, no bankruptcy law changes are before the Australian Parliament, and no Bankruptcy Amendment Act has commenced since 2023. The $10,000 creditor's-petition threshold and 21-day bankruptcy-notice period used throughout this hub are AFSA's current, confirmed figures; verify directly with AFSA before relying on any different figure you may have seen reported.